Introduction:
Consider yourself a mutual fund company in which millions of investors have invested their trust, not just money with a hope of getting good returns on their investment. The criticality lies in the soundness of fund’s management responsible for meeting the expectations of the investors as well as fund’s financial goal. There are multiple key players at the background working together to achieve this common goal. These players and their role is what we will be scanning through here.
Sponsor
A sponsor is an entity responsible for laying the foundation stone of a fund. In real sense, it puts in the seed money in fund’s set up. Any registered company, a scheduled bank or financial institution can act as sponsor. As per SEBI norms it must possess a prerequisite and good financial record in past. AMC and custodian are appointed by sponsor but once AMC is constituted, sponsor is just the stakeholder of fund and is not liable for making up any operational losses of the fund.
Board of trustees
Mutual funds in India are constituted as trusts and have a board of trustees to run the fund. AMC is a third party appointed by trustees for managing the money but the real power lies with the trust that is accountable for investor’s money held in the fund. They can even sack the AMC if it is found doing unethical practices or underperforming.
Custodian
It is an independent entity appointed for holding and safekeeping of the fund’s assets. Bigger fish, bigger will be the pond. As the portfolio of securities for a mutual fund is so big it need a third party for receipt, delivery of securities and keeping an account of the same. Most of the funds use banks as their custodians but one bank can act as custodian of multiple funds. On a broader side when instead of common public, bigger players like FIIs are the investors; the concept of domestic and global custodian comes into picture.
AMC
Asset Management Company can be considered as the heart of any fund. It manages the investments you have made. At the core are fund managers or portfolio managers taking investment decisions on your behalf. They have access to critical market data that helps them analyse the market conditions and explore investing opportunity to meet their financial objectives. In addition, it is responsible for maintaining a record of pricing and accounting data. It also calculates NAV of the fund that is mandated by SEBI to be disclosed publicly on daily basis. The fund charges investors a fee called management fees for the services offered by AMC.
The ultimate aim any fund is benefit of investors and SEBI is keeping an eye on above entities to ensure compliance of rules and regulations set for the investor’s benefit. The fund regulations in India are considered the best in the world and one major strength lies in well coordinated structure with defined roles of sponsor, trustee, AMC that tend to protect investor’s from risk of default.